Three directors of a defunct bank in rural Indiana have persuaded a congressman to launch an investigation into its closing by federal regulators.
The Office of the Comptroller of the Currency ordered 127-year-old Rushville National Bank to close nearly five years ago, saying the bank- which then had $40 million of assets-was insolvent.
Since then the directors, including former Indiana Treasurer John K. Snyder, have maintained that the OCC shut down Rushville National because of a grudge against Donald E. Hedrick, the bank's chairman and president.
Rep. Dan Burton, an Indiana Republican and chairman of the Reform and Oversight Committee, has served subpoenas to the OCC, asking the agency to release by Sept. 5 documents pertaining to Rushville National's closing.
A spokeswoman for the committee said it wants to determine through a General Accounting Office investigation whether the OCC followed proper procedures.
In a letter to acting Comptroller General James F. Hinchman, the head of the GAO, Rep. Burton requested documents that he said would show whether the OCC inappropriately reclassified a large number of sound loans to make Rushville National appear insolvent. The congressman said he also wants to determine whether the agency's contact with one of Rushville National's major creditors played a role in the decision to close the bank.
An OCC spokesman said the agency had no comment on the investigation.
John R. Price, the directors' attorney, said he hopes the GAO investigation will set the record straight.
"These are people who have been grieved and hurt and their reputations damaged," Mr. Price said. "If the facts come out and everything is fine, great. Our people will move on to another line of business."
If the GAO investigation reveals wrongdoing, Mr. Price said, his clients will seek damages from the OCC.
Mr. Price said his clients believe the OCC acted improperly by reclassifying sound loans and making Rushville National write off at least one government-guaranteed loan.
Mr. Price has also accused the OCC of ordering a creditor of Rushville National's holding company to call a loan due in order to force Mr. Hedrick out of banking.
Mr. Hedrick wasn't the first Rushville president to clash with regulators. In 1974 a predecessor committed suicide after they accused him of illegally lending bank money to himself.
But Mr. Price said the OCC's grudge against Mr. Hedrick and Rushville National stemmed from a series of fines levied against the directors in 1984. The fines stemmed from more than 400 charges, including poor loan documentation.
Mr. Hedrick and the directors fought the OCC's charges in court for seven years, further irritating the agency, Mr. Price said. They stopped when the Supreme Court refused to hear the case.
"Rushville National was healthy and never should have been closed," Mr. Price said.
The OCC, however, disagrees. The agency has maintained that Rushville National was undercapitalized. The OCC noted in 1982 that Rushville National's asset quality had deteriorated and suggested the directors work to increase capital, a spokesman said.
The bank went into the red in 1988 and continued to bleed each successive year.
Mr. Price said several insiders invested in Rushville National through a preferred stock offering in 1991, but regulators made the bank return much of the money.
The OCC said the insiders' attempts to raise more capital were unsuccessful and Rushville National continued to deteriorate financially until ordered to close a year later.